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Benefits Of Investing in Real Estate

by arslan on August 26, 2022
Benefits Of Investing in Real Estate
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The benefits of real estate investment are numerous and multifaceted. With considerable investment, one can earn excellent returns, tax advantages, predictable cash flow, and many added benefits.  Also, it’s a great source of building wealth. If you are thinking about investing in real estate? Here’s what you need to know about real estate investment in Pakistan and why the property is considered a good investment.

Salient Takeaways

In real estate investment, money is made through rental income, appreciation, and profits generated by business activities that depend on the property.

Investing in real property includes passive income, stable cash flow, tax advantages, diversification, and leverage.

Real estate investment trusts (REITs) guide you on the way to investing in real estate without having to own, operate, or finance properties.

 Build Equity and Wealth

As you pay down a property mortgage, you build equity which means an asset that’s part of your net worth. And as you build equity, you have the leverage to buy more properties and increase cash flow and wealth even more.

Cash Flow

Cash flow means the net income from a real estate investment after mortgage payments and operating expenses have been made. A primary benefit of real estate investing is its ability to generate cash flow. In many cases, cash flow only strengthens over time as you pay down your mortgage and build up your equity.

 Deductions and Tax Breaks

Real estate investors can avail advantage of numerous tax breaks and deductions that can save money at tax time. In generic terms, you can deduct the reasonable costs of operating to buy real estate property in Pakistan.

Fact

You can depreciate the cost of buildings but not the land. And, since the cost of buying and owning, an investment property can be depreciated over its useful life), you benefit from decades of deductions that help lower your taxed income.

Portfolio Diversification

Another benefit of investing in real estate is its diversification potential. Real estate has a low and, in some cases, negative correlation with other major asset classes. This means the addition of real estate to a portfolio of diversified assets can lower portfolio volatility and provide a higher return per unit of risk. Therefore, there are many real estate problems and challenges in Pakistan.

Appreciation

Real estate investors make money through various means like rental income, any profits generated by property-dependent business activity, and appreciation. Property values likely increase over time, and with a good investment, you can turn a profit when it’s time to sell. Rents also tend to rise over time, which can lead to higher cash flow.

Real Estate Leverage

Leverage is using various financial instruments or borrowed capital (e.g., debt) to increase a real estate investment opportunity in Pakistan. A 20% down payment on a mortgage, for example, gets you 100% of the house you want to buy that’s leverage. Because real estate is a tangible asset and one that can serve as collateral, financing is readily available.

Competitive Risk-Adjusted Returns

Real estate returns vary, depending on location, asset class, and management. Still, a number that many investors aim for is to beat the average—what many people refer to when they say, “the market.” The average annual return over the past 50 years is about 11%.

Still, real estate is a distinct asset class that’s simple to understand and can enhance the risk-and-return profile of an investor’s portfolio. On its own, immovable offers cash flow, tax breaks, equity building, competitive risk-adjusted returns, and a hedge against inflation. Real estate can also enhance a portfolio by lowering volatility through diversification, whether you invest in physical properties or REITs.

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